TPG should pay rural levy for each FTTB service: NBN Co

NBN Co has proposed that TPG and other infrastructure competitors cross-subsidise the rural National Broadband Network build when they cherry-pick high value customers in urban areas with fibre-to-the-basement.

Such an approach could work similarly to the Universal Service Obligation (USO), a cross-subsidy scheme that ensures all Australians have access to telephones, NBN Co CEO Bill Morrow said today on a Q3 financial results call with analysts and media.

Morrow said NBN Co will highlight the economic difficulties for the government-owned company that will be created by TPG’s FTTB plan in an upcoming submission to the government's NBN Panel of Experts — also known as the Vertigan review panel, after its chair Michael Vertigan.

Yesterday, Morrow announced a commercial response to TPG that will prioritise delivery of service to areas targeted by TPG’s fibre-to-the-basement plan.

“If in fact there is infrastructure competition that comes in to cherry pick within these premium areas, the cost overall of building the network then goes up,” Morrow warned.

If TPG takes revenue from NBN Co in urban areas, NBN Co will have to charge urban areas more in order to pay for connecting high-cost rural areas, he said. That’s likely to push more urban users to TPG and other competitors, potentially ruining the economics for connecting the regional areas, he said.

One option is for the government to “impose a cross-subsidy component on the infrastructure competitor.”

“If, for example, TPG is going into a certain area, they can do whatever cost model they can come up with, but there’s a levy ... to be able to partially offset these costs of getting a broadband connection to the rural areas.”

There are alternatives, he said, with another option being a tax subsidy where taxpayers pay the difference.

“We support competition,” added Morrow, who is the former CEO of number three telco Vodafone Hutchison Australia.

“We just need to be able to explain the implications based on the original assumptions [of the NBN].”

Morrow said the results of the Vertigan review would impact NBN Co negotiations with Telstra, and NBN Co will want to have the review resolved before it comes to an agreement with Telstra.

However, Morrow asserted that the renegotiation was “going well” and reaffirmed the talks can be completed by the middle of this year. However, he said NBN Co “will not trade time for value in the negotiations.”

Morrow acknowledged that end users and third-party suppliers alike expect NBN Co to improve its processes.

“Our third-party suppliers have been frustrated in the past but I can say that in speaking to them, they’re gaining confidence in the improvements being made,” he said.

One area of improvement called for by Morrow is doing better to connect the premises passed by fibre.

“The primary focus for management has been on building, with little regard for connecting,” he said. “We know we need to evolve.”

NBN Co chief operating officer Greg Adcock said the company was “changing its construction model going forward to increase the number of premises serviceable at the ready-for-service state.”

“We are now moving to a model that proactively installs a lead-in and the connection box on the outside of the home during the rollout. This do-it-right-first-time approach will have a direct and positive impact by removing the single largest root cause of failure in installation.”

In addition, NBN Co has launched a “cleanup campaign” that will ensure all previous premises passed are connected, he said.

Also, NBN Co is mulling providing mobile backhaul services but nothing has been decided, Morrow said. The CEO had advocated for this when he was at Vodafone.

“If there is a way to be able to share in some of this infrastructure build with the likes of the other telecom companies, then I think that there’s good reason to do so, and we are considering that.

“At the moment right now, the remit that we have from our shareholders [and] the government isn’t so much about the backhaul product, but that is a factor that we are building into our submissions and analysis.”

Morrow said he was optimistic that NBN Co can complete its mission to connect all of Australia to high-speed broadband.

“We plan to close the digital divide that exists between our nation and those who are more digitally advanced. We will seek to close the digital divide between the metropolitan and rural areas and we will partly close the digital divide between those who are economically well off and those who are less advantaged.”

Morrow said he regularly consults with Communications Minister Malcolm Turnbull and the two men have “a couple interactions a day.”

“I would categorise my relationship with him right now, two weeks in, as good,” he said. “I hope it remains that way.”

Q3 results

NBN Co reported that it had passed 512,659 fixed line and fixed wireless premises as of 31 March. That was 96,000 or 23 per cent more than had been passed at the end of the previous quarter.

It represents an average run rate over the quarter of about 6000 combined brownfields and greenfields premises per week and around 1000 fixed wireless premises per week, NBN Co said.

There were 166,642 premises with an active NBN service at the end of March, 27 per cent more than the previous quarter. The number of fibre users increased 39 per cent to 111,035 in the quarter.

However, 36 per cent of the brownfields premises passed by fibre were unable to order a service, NBN Co said.

In the core network, NBN Co has completed 113 of 121 points of interconnect, and 80 per cent of the transit network has been completed.

NBN Co said the number of fixed wireless service activations increased by 80 per cent to 11,673. The company completed construction of a satellite ground station at Roma and the Telemetry, Tracking and Control Centre at Alice Springs.

NBN Co reported an operating loss of $1.1 billion after generating revenue of $69.8 million in the nine months ended 31 March.

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